Thursday

Jun 8, 2017 at 8:01 PM

The Kansas Legislature’s reversal last week of the state’s tax policy has left most, though not all, with a sense of stronger fiscal footing.

The House and Senate voted to override Gov. Sam Brownback’s veto of a bill that raises about $1.2 billion in the next two fiscal years to help alleviate a projected $900 million shortfall and provide more robust K-12 education funding. The override was a remarkable rebuke of signature Brownback policies that included a path to becoming a zero income tax state and a tax exemption for more than 300,000 businesses.

Sen. Laura Kelly, a Topeka Democrat, voted in favor of the bill on June 5 and for the veto override the next day.

"I think by overriding the governor’s veto that we have started the turnaround," Kelly said. "We’re still not out of the woods. It’s going to take years to dig out of the hole that’s been created by the 2012 tax experiment."

In 2012, Brownback approved sweeping tax cuts. The plan, which he dubbed a "real live experiment" was criticized after it failed to spur job growth and resulted in cuts to public agencies, sales tax increases and a deepening deficit.

The business-owner tax exemption was a major contributor in the policy’s downfall.

"That was a significant amount of money the state lost in revenue," said Maria Koklanaris, a senior reporter with Tax Analysts, a nonpartisan tax publishing news service.

It also was an unusual move, Koklanaris said, as Kansas was the only state where such businesses were fully exempt.

A good, sound policy involves a tax base that is as broad as possible so rates can be lower, she said.

Brownback’s policy has had an irreparable effect, said Michael Leachman, director of state fiscal research with the Center on Budget and Policy Priorities, a left-leaning think tank.

"The notion you could eliminate your income tax is forgetting you’re taking that money from schools and from people in the state," he said. "You can’t get back those kids’ elementary school years. That brings home the impact of these policy choices we make."

Additionally, the idea that lowering tax rates will attract businesses to the state is inflated, Leachman said. What’s more important is investing in education and infrastructure, which drives entrepreneurship and innovation and therefore a strong economy, he said.

"I think Kansas can be made more hopeful for its future," Leachman said of the tax policy shift.

However the state’s experience provides a cautionary tale for the country.

President Donald Trump has proposed a similar LLC loophole, Leachman said.

"That is a big feature of the Trump tax plan," he said. "I think there are very important lessons to be learned for the country as a whole. The lesson for the country is, don’t go that way."

But Brownback remained firm in his economic stance, calling the Legislature’s decision the "wrong move." Speaking the day after the override, Brownback said he believed that increasing taxes will deter businesses from the state and hurt rural areas where low prices for agriculture and energy commodities remain a challenge.

Americans for Prosperity said the true problem is "wasteful government spending."

The National Federation of of Independent Business also denounced the tax plan, especially because one of its provision includes a retroactive increase.

"What the Legislature forgot or chose to ignore was that businesses in general and small businesses in particular need predictability," said Dan Murray, the organization’s state director. "They’re not going to expand or create jobs if they don’t have the confidence that the Legislature isn’t going to pull the rug out from under them."

Following the override, Moody’s Investors Service revised Kansas’ outlook from negative to stable.

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